LUMA's State of Digital Marketing at DMS West 17 (with Commentary)
LUMA presents our annual State of Digital Marketing, which covers our views on the
market, industry trends, and the future of the ecosystem with a specific focus on
digital marketing. We hope you enjoy it.
Meet the Senior LUMA Team
Terence Kawaja Brian Andersen Mark Greenbaum Dick Filippini Conor McKenna Gayle Meyers
Founder & CEO Partner Partner Partner Vice President CMO
Terry leads strategy,
banking and content
He’s also head
comedy writer and
Brian is LUMA’s
He excels at
coaching both little
league and big
Mark runs M&A
execution for LUMA.
He’s never met a
term sheet he
Dick leads LUMA’s
mobile and gaming
You can find him
holding court every
Conor ties it all
LUMA's junior teams.
He also wrangles the
Gayle runs LUMA’s
Think of her as top of
the LUMA funnel.
The period since the presidential election has been solid for public markets overall, with
the NASDAQ up ~30% over the last twelve months. MarTech continued to be a strong
category behind Shopify’s continued run, which is up over 150% to nearly $10 billion
market cap. Ad Tech companies had also been trading above market growth until
recent Q3 earnings missteps hit across almost all the players.
Look – an IPO market! Strong equity market finally welcomed a number of new entrants
last year, including…
Yesterday’s debut of email marketer SendGrid, which priced above the range, to a 6x
trailing multiple before rising another 12% in yesterday’s trading.
Which has us wondering who will be next with a number of scaled players queuing up in
Along with new entrants, other activity has really reshaped the public markets for Ad
Tech and MarTech. Let’s face it, public markets have been fairly unfriendly, especially for
If we look back 5 years, a dollar invested in the NASDAQ would have doubled while a
dollar invested in the Ad Tech players would have lost almost two-thirds its value. This
started when Millennial Media went public on the premise of mobile and then promptly
missed its first quarter.
This first misstep by Millennial Media demonstrated that legacy media I/O based
models lacked the predictability public markets value and thus tainted the followers
even as business models evolved. So much so that in 2014 we published “Color by
Numbers” to highlight the differences and valuation implications among business
models ranging from network, to programmatic, ultimately to true SaaS, which public
markets appeared to struggle to differentiate.
2017 saw the Great Ad Tech Cleanup, with all the remaining I/O based businesses
having been acquired, leaving a public company cohort with platform business models
providing a more attractive comp universe.
So that’s a lot about the public markets, but let’s get real, M&A remains the primary
source of liquidity and remains very active.
Importantly, looking at scaled exits over $100 million, we saw 45 deals.
While 2017 lacked some of the +$1 billion deals of the prior year, we saw very solid exits
across Ad Tech and MarTech categories.
A lot of what is happening in MarTech is being driven by what’s happening in the
advertising ecosystem. Great news: digital media continues its growth. Consumers’ time
continues to shift towards digital consumption channels and ad spend continues to
However, there is concern that Google and Facebook are taking a big and dominant
share of the growth. The Duopoly has over 60% market share of all ad spend in digital
and almost all of the growth.
If this trend continues, it will make our life making LUMAscapes a lot easier since it will
just be down to a couple of companies, or maybe three with new entrant, Amazon.
Speaking of Amazon, this company has produced revenues with an incredible 76%
compound growth over the past twenty plus years. Compound growth like this for 20
years is hard to do!
Amazon is an absolute beast, and the market is recognizing this. The stock has been on
a tear while the rest of retail is being eviscerated in its path.
One of Amazon’s main revenue drivers is the subscription program “Prime”, which now
has over 80 million subscribers. Not only does Prime provide Amazon a predictable
revenue stream, but it also increases the average amount an Amazon customer spends
and creates “stickiness”.
Even more incredible is that they have managed to circumvent Google. With its
ubiquitous search bar, Google used to own the the top part of the funnel, but Amazon
has quietly become the top choice for searching products to buy. According to a study
by Bloomreach, over half of shoppers start their search on Amazon rather than Google.
Amazon is well on their way to being a major player. In a world of consumer
touchpoints, Amazon has an amazing array of abilities to interact with the consumer,
whether it’s through the e-commerce app, video or one of the fastest growing and
potentially most disruptive new forms of media, voice.
Back to Facebook and Google, who own almost two-thirds of the share of digital ad
spend, leaving a paltry 37% for everybody else. However, 37% of a $83 billion market is
$31 billion, which is still pretty big and it is not static. There is a constant shift between
players in that slice of the pie, which gives new players opportunities in a very dynamic
marketplace. More importantly is the opportunity coming from the addressability of TV,
an enormous market where the Duopoly have substantially less share.
Combined, digital and TV is a $155 billion market, where companies outside of the
Duopoly control over two-thirds of the market.
No doubt those opportunities are one of the reasons why this sector has attracted
acquisition investment from a wide variety of deep-pocketed strategics from a variety of
At the beginning of 2017, reports came out that proclaimed the sector was finished,
spurred from the substantial decline in venture capital investments going into the
sector. What these reports neglected to point out was the fact that while venture
capital was going down, private equity was going up in a huge way with over $12
billion invested in Ad Tech and MarTech in the last 24 months.
Private equity is much later stage focused, and we believe is evidence that we are
seeing the beginning phases of the maturation in this industry. This is incredibly natural
and happens in every industry. Ad Tech is logically going through a maturation phase
where we will see a rationalization and consolidation of companies.
One of the challenges is that the Ad Tech and MarTech ecosystems are massively
fragmented; 5,000 companies across 18 LUMAscapes. We did a four-year lookback and
for the first time we noted that there are more acquisitions than there are new
companies appearing on the LUMAscapes. Net consolidation is here!
To think about the market opportunity, let’s look at fractional math. We just talked
about a further migration towards digital and this big opportunity called TV, which
represents the numerator getting larger. At the same time, with the maturation phase
and the consolidation of players, the denominator is getting smaller. So what happens
when the numerator gets bigger and denominator gets smaller? Massive wealth
creation for a few companies.
The need for differentiation is even further highlighted by these changes, provided we
don’t blow it. By this, I mean there is an epidemic of challenges to the advertising
supply chain. They’ve been there for a while but now they’re garnering consequences.
Mark Pritchard, CMO of Proctor & Gamble, has been on a rampage. He’s been on a tour
for the last year talking about the challenges in the digital advertising ecosystem and it
all really boils down to one thing: trust. This is a real issue and it has economic
This chart illustrates the economic impact of some of these issues. The blue bar
represents all media impressions. Ads are served to most of it and blocked for others.
You lose some of the ads served to fraud, others because they are not viewable
depending on the standard and so on. This has economic consequences because the
marketer loses everything that’s paid for but not seen by a human whereas publishers
lose what is blocked and lost to fraud.
Proctor & Gamble announced they pulled back $100 million and reported that it had no
effect on growth. This is extremely troubling when you have the largest advertiser in the
world say a significant drop in advertising spend didn’t matter and should serve as a
call-to-action to accelerate the clean up.
This behooves people to limit vulnerability to some these exogenous forces, whether it’s
the supply chain and fraud or changes happening in the browser environment that are
limiting your ability to track data or privacy regulations.
It’s the last issue, Europe’s General Data Protection Regulation (GDPR), that was in fact
a deal rationale behind the latest significant acquisition in the sector when SAP bought
Gigya for $350 million. They were looking to “GDPR-proof” their business with Gigya,
which focuses on identity.
It feels like we’re in a scenario where MarTech is needed to heal Ad Tech. The problems
of Ad Tech, whether it’s fraud, viewability or the verification, are being solved by
companies in MarTech with identity capabilities.
We believe that identity is the core of marketing. This used to be a stack where you
would start your planning, execute campaigns, measure them and then plan again the
next year. Today, it’s a real-time circle where identity is at the core and works to join the
capabilities and data from Ad Tech and MarTech solutions in real time.
We like to remind ourselves that marketers are not looking for technology for
technology’s sake. They are instead focused on one overarching goal: to drive more
revenues at the lowest cost.
From the large marketing clouds to the start-ups, technology vendors aim to assist
enterprises to drive more revenues by optimizing the customer experience through
delivering the right message at the right time to the right person.
In Ad Tech, obviously the right message is not getting through if it is not viewable, or is
“viewed” by a bot. We are seeing MarTech solutions from companies such as Moat, IAS,
WhiteOps and DoubleVerify provide solutions to address these issues. In MarTech, we
feel there are three high-level capabilities necessary: data, identity and orchestration.
Data and orchestration enable the right message at the right time, and identity
solutions enable the message to be delivered to the right person across devices.
Since there are different dynamics and vendors in B2B vs. B2C Marketing, we are going
to address them separately.
In past presentations we have discussed the critical three capabilities: data, identity and
orchestration, which marketers must assemble to coordinate their marketing activities,
and integrate them with their execution channels.
However, MarTech has long been a “best of breed” environment. Therefore, marketers
utilize many channel-centric systems – each with their own data store. The issue with
this is that there is no single view of the customer, since data assets are distributed and
This is a major issue for marketers. In this eMarketer survey, there is broad agreement
that a single view of the customer is important.
However, only 5% of respondents claim to have a single platform that manages data
across multiple channels.
So that raises a question: If marketers need a single view of their customers, what
makes up the customer record? It is information, such as name, address and purchase
history. It should also include additional information (consistent over time) such as sizes,
segments, brand affinities and income. In order to provide relevant communications at
each point in time, the customer record should also include more dynamic data, such as
interactions with emails, ads, social mentions and current (or recent) website browsing.
If there is one system that provides the single view of the customer / manages the
customer record, who owns this?
In B2B marketing, it is clear. The customer record is managed by customer relationship
management (CRM) systems, such as Salesforce, Microsoft Dynamics, Netsuite, etc. But
there has not traditionally been a single system for this in B2C marketing.
But we feel that the logical B2C system for managing the customer record is emerging,
which is the “customer data platform” (CDP) category. These systems pull data from all
the data silos, normalize it, and then apply intelligence to the data (typically using
machine learning / AI technologies) to determine the appropriate next action across
The “CDP” category has emerged in the past year to being a recognized category. We
therefore have revised the Marketing Technology LUMAscape to reflect this.
In general, the CDP has three main functions. First, it collects, normalizes and unifies
data from a variety of systems such as email platforms, websites, mobile apps, call
center logs, eCommerce systems, etc. Second, it applies intelligence to this data to
segment the users and determine the next best action, such as a product
recommendation or offer. Finally, it syndicates the next action back to the execution
platforms to enable the interaction with the consumer across touchpoints.
Therefore, a full-featured CDP will enable both the “data” layer and “orchestration”
capabilities that we feel are critical for marketing.
We view the CDP category as having two main segments: commerce-focused and the
other applied across verticals. Those on the right include companies that were founded
as a CDP (such as Lytics), while others are focused on data collection/movement, such
as former tag management players (Tealium) as well as mParticle and Segment.
Although not a perfect segmentation, most of the companies on the left are DR
focused, while those on the right are more brand-oriented.
A final comment on the “orchestration” layer. The large marketing clouds currently do
not have a system that can be classified as a CDP. However, IBM, Salesforce and Adobe
are all touting their A.I. capabilities with Watson, Einstein and Sensei. While nascent,
these technologies will likely serve as the orchestration capability in the future for these
However, it is interesting to note that one of main marketing clouds – Oracle – recently
panned their competitors, saying that when they claim they are in A.I. “most of the time
it’s just nonsense.”
At the last Digital Marketing Summit, we summarized the state of B2B marketing with
this slide, where we saw there being three main key trends: 1) the adoption of account
based marketing to enable the right message at the right time to the right accounts, 2)
the use of predictive analytics to help sales teams identify and engage with the
accounts with the highest likelihood to purchase, and 3) the convergence of marketing
technologies and sales technologies. We still view these as the key trends in 2017.
The one area that really unifies these trends is the adoption of account-based
marketing. The vendors in B2B marketing have all embraced the term and
methodologies, and are actively touting their capabilities.
We are often asked whether we feel feel the Marketing Clouds will “win,” or if the
market will stay focused on “best-of-breed.”
To start with the marketing clouds, they obviously were created by stitching together
There are many detractors of these efforts, with questions of whether marketing clouds
should exist, or if they are serving their customers well with logical, integrated suites.
“Nonintegrated tech platforms” is the leading obstacle to integrating marketing
activities, per eMarketer.
And it is not surprising that marketers still largely operate siloed, non-integrated, best-
of-breed systems. Neeraj Agrawal from Battery Ventures (one of the most successful
MarTech investors) believes that this is due to the inherent nature of marketers being
focused on “incremental lift” from each system. Due to this mentality (driven from their
marketing KPIs), he feels marketing tech uniquely will always favor best-of-breed.
However, there is a case for the marketing clouds. When I worked at enterprise
software companies, we consistently heard from large enterprises that they prefer “one
throat to choke” with vendors that can offer pre-integrated systems. And the marketing
clouds are showing success, with Adobe on track to achieve $2B in revenues, and
Salesforce $1.2B in revenues, from their marketing clouds in 2017.
Earlier this year, Cisco published its “Digital Engagement” stack that shows all the
vendors they use for their marketing and sales activities.
If you break down their stack, they have essentially used: 1) their own technologies, 2)
Adobe for their “experience” applications, and 3) best-of-breed for everything else.
So which wins? In the ultimate cop-out, we believe both. As long as the marketing
clouds are able to combine complementary assets with integrations that benefit their
customers (as Adobe has done in the Cisco example), then vendors will likely opt for
these suites. However, best-of-breed vendors will always thrive in emerging areas that
enterprise software vendors have not yet addressed, or if the marketing clouds do not
provide valuable integrations and their products atrophy over time (and don’t maintain
their best-of-breed status as stand-alone products).
The mission of the LUMA Corporate Partners program is to provide education, insights and market
development to all constituents of the digital ecosystem. LUMA’s Corporate Partners are comprised
of leading media, marketing and technology companies for whom LUMA’s leadership team provides
strategic advice on the latest industry trends and a fresh perspective to aid in making critical growth
decisions. LUMA’s proprietary insights, research, content and events initiatives afford personalized
guidance and education at leadership off-sites, teach-ins and customer events. If LUMA can help
your organization sort through this complicated and dynamic sector, contact Gayle Meyers, CMO at